Trust administration potpourri

Trust Administration Potpourri

Here at Fleming & Curti, PLC, we comb recent case reports and news items looking for a good story to illustrate important legal principles. We are always on the lookout for stories about, for instance, trust administration issues. Sometimes our work is easy; sometimes there just don’t seem to be great recent stories.

Perhaps it’s because of the upcoming holiday season, but the search seemed less productive this week. Rather than try to overstate the significance of any one case, we’ve decided to bring you a potpourri of trust administration cases. Each makes a point, albeit modest.

Taken together, these cases can illustrate several trust administration issues. Three are from Arizona in the past month — and all of those are unreported. That means even the judges deciding the cases thought they were less significant. The fourth case is a reported Florida Court of Appeals decision. Herewith our pre-holiday potpourri:

Can a trustee file pleadings without a lawyer?

The family of Richard Fell had a dispute over the handling of the trust. They litigated their differences in Illinois. One result of the settlement of that litigation was that an Arizona bank was named as successor trustee.

The bank proposed to “decant” the trust, making one of the beneficiaries the sole trustee. The bank apparently believed that the family’s agreement put that beneficiary in sole charge of the trust’s assets, and the bank did not feel it needed to remain involved.

The new family-member trustee, as well as his two sisters, were given notice of the bank’s petition to decant the trust. They did not object to that request, but one sister did object to the fact that the bank had paid about $7,500 in legal fees from the trust.

The probate judge denied the sister’s claim, finding that she was not a trustee and could not represent the trust’s interests. Then her brother (the trustee) filed a notice of appearance and asked the court to reconsider its decision. The judge declined, and the trustee appealed.

One central issue in the trust administration proceeding had been whether the trustee, a non-lawyer, could represent the trust’s interests in court. The probate judge said no, but the Court of Appeals simply dodged the question. It ruled that whether he could represent the trust’s interests or not, the brother/trustee had not formally appeared in the court below before the judge’s ruling. Matter of Richard J. Fell Trust, October 23, 2018.

Did a law firm commit malpractice when it treated trust assets as community property?

In a complicated set of legal proceedings, a major Arizona law firm represented a married couple, their LLC and their living trust. The upshot of that litigation was that both spouses signed settlement agreements and paid the settlement amounts.

Later, the couple sued their attorneys for malpractice. They alleged that the law firm had improperly treated the assets subject to the litigation as community property, when in fact they belonged solely to the husband. The proof of that fact: a postnuptial agreement the couple had entered into years before the litigation.

The law firm in turn sued the couple, alleging that they had not paid their legal bills in the underlying litigation. The entire question went to a jury trial. The jury ruled in favor of the law firm, and the judge entered a judgment for $581,483.70 in additional sanctions against the former clients.

On appeal, the couple argued (among other things) that their lawyers committed malpractice by not treating the trust’s assets as the husband’s separate property. The postnuptial agreement should have clarified that status, they insisted.

The Court of Appeals agreed that there was no indication that the couple had ever shown the postnuptial agreement to their lawyers. In fact, they had also not shown it to the lawyer who prepared their trust. The verdict was left standing. Atkins v. Snell & Wilmer LLP, October 16, 2018.

Can a gift of future injury settlement proceeds be implied?

Robert Ode was the oldest of the fifty-two hostages held by Iran after the fall of the American embassy in that country in 1979. He died in Arizona in 1995. His wife Rita survived him.

Mr. and Mrs. Ode had transferred all their assets to a revocable living trust, and their pourover wills left everything to the trust. That trust left their combined estate to eight charitable entities.

Before her own death in 2012, Mrs. Ode made a lifetime gift of many personal possessions related to the hostage crisis. She gave those items to four of her husband’s nephews.

After Mrs. Ode’s death, Congress adopted the “Justice for United States Victims of State Sponsored Terrorism Act.” That law created a fund, with payments to be made to (among others) the Iranian embassy hostages.

Did Mrs. Ode intend to give any proceeds from that fund to her nephews, as well? That was the argument made by the nephews. They insisted that they should be given a chance to demonstrate that intent in a trial involving the Odes’ trust administration.

The probate judge granted the trustee’s motion to dismiss, and the nephews appealed. The Arizona Court of Appeals did not buy their argument that the gift of hostage-related items was a “symbolic” gift of all hostage-related funds, and the probate court’s dismissal was upheld. Matter of Estate of Ode, October 25, 2018.

Court can’t keep jurisdiction over trust if there’s no legal dispute

The one reported case in today’s potpourri, from the Florida Court of Appeals, presents an interesting (but narrow) question. Can someone who asks the court to get involved in trust administration then dismiss the action and divest the court of jurisdiction? As it turns out, yes — but let’s see how to get there.

Ray Baden filed a Florida probate proceeding asking the court to determine the effect of the trust he and his wife had signed. He also asked for a judgment against several of his children.

Two years later, Mr. Baden and his children reached an agreement. They filed it with the court, and indicated that it resolved all the questions about trust administration. It did not resolve Mr. Baden’s separate claims against his children, however.

The probate judge entered an order approving the settlement, and indicating that the court would retain jurisdiction over the matter to “supervise” the trust. Nonetheless, Mr. Baden’s children continued to file pleadings seeking a court order directing the trustee to pursue Mr. Baden for additional moneys.

Finally, Mr. Baden had had enough. Deciding he would not continue to pursue his claims against his children for unpaid loans, he simply dismissed the entire trust proceeding. Then he objected to the court’s continuing to assert jurisdiction over the trust.

When the probate judge declined to terminate the trust case and dismissed his attempted dismissal as a “nullity,” Mr. Baden filed a request that the Florida Court of Appeals mandate dismissal. The appellate court agreed; if the only person filing in a trust administration case seeks its dismissal, the probate judge can not simply retain jurisdiction on their own motion. Baden v. Baden, November 14, 2018.

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